Step 1: Understand what is being asked.
Working capital is the money needed to finance the day-to-day operations of a business. We need to identify which of the four given situations will require a higher working capital.
Step 2: Recall the factors affecting working capital requirements.
Working capital requirements increase when: the operating cycle is longer, competition is high (requires more inventory and liberal credit), growth rate is high, or when credit is extended generously to customers. Working capital decreases when: it is a trading firm (no manufacturing), the operating cycle is short, credit policy is strict, or a firm has access to emergency borrowing.
Step 3: Evaluate option (A): Trading organisations.
Trading firms buy and sell finished goods directly. They do not have a manufacturing cycle, so the time between investing money and recovering it is short. They generally require lower working capital.
Step 4: Evaluate option (B): Short processing cycles.
A short processing or operating cycle means the firm converts raw materials to finished goods and collects cash quickly. The money is tied up for a short period, leading to lower working capital requirements.
Step 5: Evaluate option (C): High level of competition.
In a highly competitive market, a firm must maintain high levels of inventory so that goods are always available to customers (to prevent losing sales to competitors). Additionally, the firm must offer generous credit terms (longer credit periods) to attract buyers away from competitors. More inventory and more debtors both mean higher working capital requirements. So high competition leads to higher working capital needs.
Step 6: Evaluate option (D) and conclude.
A strict credit policy means the firm collects money from customers quickly (short credit period), so less money is tied up in debtors, leading to lower working capital. The correct answer is option (C).
\[ \boxed{ \text{(C) High level of competition} } \]